Last month, TurnKey Vacation Rentals announced it had secured $31 million in Series D funding led by current investor Adams Street Partners, with participation from existing investor Altos Ventures and two new institutional investors. This financing round brings Austin-based TurnKey’s total capital raised since 2013 to $72 million.
With just under 400 employees, TurnKey, led by former executives from Hotwire and HomeAway, now manages approximately 3,500 vacation rentals in 52 markets in the United States. We had the opportunity to catch up with TurnKey cofounder and executive chairman John Banczak to gain more insight into the company’s strategy, outlook, and opportunities for growth.
Amy Hinote (AH): What are your key objectives with this injection of capital?
John Banczak (JB): The capital is going to be used for two main purposes. The first is expansion—it costs money to add markets and local teams. TurnKey hires the local team before a single property is added, and if we plan to grow at a fast pace, additional capital comes in handy. The second purpose is to improve our technology. We’ve been the most technologically advanced property manager (PM) for years now, but that doesn’t mean we can’t improve. We’ve had products built for years such as our noise monitors, in-home tablets, captive portal, housekeeping and inspection apps, our TurnKey FieldSync system and the proprietary digital locks we have developed, but there is more to come.
AH: You raised money from existing investors instead of going outside. Do you see that as a testament to the trajectory of the company or a reflection of slowed interest from outside investment in the vacation rental industry?
JB: We raised money from existing investors and two new investors this time around. That is a great testament to the trajectory of the company. Insiders know it better than anyone. It always makes sense to work with existing investors first if they have the funds available and further investment is even possible. In many cases, outside investors are needed as the size and stage of the company changes. We think we have a great mix of investors who are early-stage-growth-focused, along with some who start to look at later-stage businesses.
AH: Will TurnKey be looking to grow internationally in 2018?
JB: This is probably the most popular cocktail question I get. I think most casual observers love the idea of TurnKey having properties in exotic locations around the world. At this point, we have no plans to do so. Our organic growth in the United States has continued, and with such a large market, our priority is to stick to what we know well.
AH: In what markets are you seeing the most inventory growth opportunity?
JB: We are seeing incredibly consistent growth across most of our markets. There really isn’t much of a difference between beach, ski, or metro for us. The real difference we see is when we have a great local team. Even though we are a technology-driven company, hospitality is won or lost based on people, and we have great people. I think our folks can succeed just about anywhere.
AH: Are you investing in revenue management (RM)? With this discipline still in its infancy, has TurnKey been able to significantly move the needle for bookings using RM strategies?
JB: As you know, revenue management is near and dear to my heart. I started my career at Northwest Airlines doing RM. The team I joined at Northwest are some of the smartest people I’ve ever worked with. Countless people from that group have gone on to incredible careers. I was the junior guy there and was lucky to get that role. Not only did I learn how important RM was, but I also saw it in action from some of the brightest airline folks ever. So RM was an enormous factor at TurnKey from the start.
We don’t talk about our exact strategies, but we have a large RM and business intelligence team here that have built an array of demand forecasting and decision support tools. The head of our RM group came from Zilliant and is one of the most respected pricing and decision support consultants worldwide. We are constantly improving how we manage our data science and our pricing, and I believe we are the most advanced in the industry.
AH: Late last year, you appointed Jen Ford, former senior director of investor relations at HomeAway, to the CFO role. What kind of impact has Ford made on the company, and besides Ford, have there been any other key additions to your executive team or board?
JB: Jen has been an immediate difference-maker at TurnKey. We had been recruiting her for over a year. I don’t think there is anyone in the country who is more qualified or a better fit for the team here, and we are very fortunate it worked out for us. The board has remained the same since the addition of Jeff Diehl (managing partner at Adams Street Partners). Little known fact—Jen, Jeff, and I are all from Wisconsin, so the board meetings usually start with a serious discussion of the Packers.
AH: As you know, Wyndham agreed to sell its European vacation rental division for a reported $1.3 billion and change. Does this valuation have an impact on how TurnKey is looking at the future?
JB: Not really, other than it is a positive sign for the industry overall. I’m not sure what the underlying metrics were, so it is hard to read too far into it. I think the main impact is the awareness it has brought. Five years ago, it was tough to explain the business to the investment community. Now folks understand just how appealing the business is. There is far more money running through the PM space than there is through the consumer websites themselves. The Wyndham deal is just another sign that folks are starting to wake up to this.
AH: Are there any emerging listing channels you are using to market your properties that are starting to show promise? And do you believe Google or Amazon will disrupt the vacation rental funnel?
JB: The big players are still the big players. We’ve really only added Booking.com and Expedia in the past couple of years, and both are performing well. I think Google will have a meaningful impact on the business, particularly on the consumer websites. With vacation rentals slowly being integrated into maps, consumers will have another option to find them. I don’t believe they will have an impact on the service side of things. Amazon has the potential to have an impact on fulfillment, but we believe a positive impact. I don’t think owners who use managers are going to stop doing that because of Amazon’s new technology, but it may make it more practical to manage homes over a wider geographic range with some of the tools they are releasing.
AH: At the VRM Intel Live London event, there was a lot of talk about professionalism and standardization in the industry. How is TurnKey looking at creating standards and leveraging trust in a brand?
JB: We’d like to think that TurnKey actually created the standards. From day one, we’ve always said that homes need to be consistent—that is our brand promise—and that is what enables us to have guest NPS (Net Promoter Scores) over 50, and in some recent months in the 60s. We believe that guests must have homes with digital locks, accurate photos, floorplans and tours, fully vetted and rated housekeepers, easy payment and cancellation policies, worry-free damage, and immediate 24/7 support. We’ve created those standards and stick to them, and we are the only national player to do so.
AH: In a Skift article about your latest funding, TurnKey cofounder T. J. Clark said that he anticipates the rise of “micro-hoteliers” or homeowners who choose different “flags” or brand promises to fly just like hotel owners choose among franchises to affiliate with today. What types of brand promises is TurnKey looking to create?
JB: We are starting to see this already. As we grow, our direct and repeat bookings increase and so has our NPS. While we are not exclusively a luxury manager, we focus on the upper-half of the market. We manage units that have at least some kind of unique feature, whether it be a perfect location, incredible amenities, or a luxury finish-out, or other desirable attribute. We recognize that our guests’ travel purpose often changes, and the units that appeal to them change as well. If they are traveling with a couple of friends in a metro market like Austin, a smaller downtown location might be the most appealing. If they travel to Breckenridge with two other families, a larger home is what they have in mind.
They are going to be able to find them both with TurnKey—and what really appeals to them is that in both situations, they are going to have the same seamless experience. We truly provide unique homes in unique locations, all with the same reliable expectations and experience. This is what matters to guests—knowing that they are going to get exactly what they expect across a wide range of locations and home types.
AH: Are there new technologies that you’ve added in the past year that you believe will become standard for the industry?
JB: There are a few about to launch that I’m not going to talk about, but yes, we’ve made some progress in the past year. Recall that we were the first in the business to build noise monitors back in 2013. We followed that quickly with photo inspections in early 2014 (we’ve now reviewed and verified more than 1.9 million photos). We were the first to launch a Wi-Fi captive portal and the first to make widespread use of SMS for both vendor management and guest support. While we were not the first to develop digital locks, we certainly were the first and only company to use them nationally.
Last year, we were the first company that I know of to make an unprecedented offer to homeowners—we guarantee against fraud now, while maintaining credit card processing rates at or below HomeAway, PayPal, and Stripe. Our identity verification and fraud prevention has gotten that good. I believe that needs to become the standard for the industry. Fraudsters need to know they are not welcome—not just at TurnKey homes, but at any vacation rental.
AH: TurnKey has grown organically instead of through acquisitions. To what do you attribute your success in organic growth? With this funding, has TurnKey identified any key acquisitions?
JB: To grow organically, you need a product that can stand on its own with industry-leading merits at a fair price. TurnKey has this. We truly manage homes better than others in the industry. We drive the revenue, and we do it with a better guest experience at a lower cost. Homeowners are smart—they have a choice, and when they are making that choice, TurnKey stands out among the crowd. When they choose you, they choose your business, your processes, and your people. We think this makes the best fit.
We’ve actually done several acquisitions, though, and when the fit is right, we are very competitive. Scott Gerber, a long-time industry veteran, runs our acquisition program now. Acquisitions have worked pretty well at TurnKey when we emphasize the fit. If a PM is simply looking to get out of the business for the absolute highest dollar value without a lot of concern for who is taking over their owners, then we may not be the best fit. For PMs who are interested in becoming a part of a winning team and sticking with TurnKey, we are a great fit. We’ve kept virtually everyone who has ever worked with any PM we have acquired.
PMs who are looking to exit the business but have deep ties to owners and want them to have the best management going forward at a reasonable cost also do well with TurnKey. We just recently completed an acquisition where the owner of the business was not looking to squeeze out a couple of extra bucks from their owners because this person was going to continue to be in real estate and part of the community. They were interested in balancing the monetization of the business with the long-term impact on their clients. In situations like this, we are a great fit.
Overall, we are active in the market. If a PM is looking at exiting the business, they really need to give us a call. If nothing else, we will make it a much more competitive market for them. If you are looking to sell your home, would you rather have one buyer or three or four? TurnKey is definitely an active buyer, and we have the resources we need to compete with anyone.
AH: Where do you expect TurnKey will be by the end of 2020?
JB: Probably not international yet! We think we will easily move up from the No. 3 provider in the United States to No. 2 and, if our organic growth continues the way we have planned, possibly up to the largest in the United States. We also hope to open our platform up in ways we had never thought of before. We expect to offer services in a number of different ways than we are doing now. That is a discussion for later this year!